COLOMBO: The Sri Lankan rupee edged down to near two-week lows on Wednesday as dollar demand from importers and banks picked up, while some dealers said an outflow of foreign funds also weighed on the local currency.
One of the two state banks, through which the central bank usually intervenes in the market, sold dollars at 130.26 to limit downward pressure and volatility.
The rupee, which rose to a high of 130.26 per dollar early in the day, fetched 130.23/26 at 0700 GMT - its lowest since Aug. 1 and weaker from Tuesday's close of 130.22/23.
"There is certainly general importer dollar demand and the exporter dollar sales have dried. A state bank is selling the dollars to selected banks at 130.26 to prevent a sharp fall," said a currency dealer.
Two dealers said the rupee was also pressured by some foreign selling of government securities , adding that the outflow may gradually pick up "if the interest rates come further down".
"There are couple of small (foreign) guys selling. But at the same time there is buying interest also," said a dealer with a one of the foreign banks in Colombo which largely deals with foreigners on government securities.
The rupee has risen 0.43 percent so far this year despite heavy dollar buying by the central bank. This has led to lower market interest rates due to higher rupee liquidity.
Currency dealers expect imports to pick up ahead the 2015 budget in November which is expected to deliver a fiscal stimulus package ahead of the possible presidential election in early next year.
Sri Lanka's main stock index was up 0.64 percent or 44.52 points to 6,992.42 at 0709 GMT, hovering near its highest since Sept. 12, 2011.
Turnover was 1.31 billion Sri Lankan rupees ($10.06 million) with 59.8 million shares changing hands.
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